MLR Bad Deal for Brokers

Rep. Mike Rogers, R-Mich., told the House Energy & Commerce Health Subcommittee last week that health insurance agents and brokers are in a "desperate situation," due to medical loss ratio (MLR) determinations.

The existing regulations that are part of President Obama’s Patient Protection and Affordable Care Act, consider agent and broker fees nonmedical expenses. Health insurers in the individual and small group market, under the reform act, must devote 80% of their premiums to covering medical costs. In the large group market, that requirement is 85%. If these standards are not met, insurance carriers are also required under the reforms to provide rebates to policyholders (starting in 2012) for premiums paid in the previous year.

"[Health insurance brokers and agents] are losing their jobs today because of this rule," Rogers told Steven Larsen, director of the Center for Consumer Information & Insurance Oversight within the Centers for Medicare & Medicaid Services. "It is an immediate jobs crisis in our communities."

Rogers is responsible for introducing HR 1206, a bill that excludes producer compensation from MLR calculations. To date, the Rogers bill has 90 co-sponsors and is currently before the Health Subcommittee.

According to a survey of members of the National Association of Insurance and Financial Advisors, approximately 75% of surveyed health insurance producers have seen reduced commissions since the Jan. 1 implementation date, and another 13% said insurance companies they do business with have told them to expect lower

Further, a draft report issued by the National Association of Insurance Commissioners (NAIC) holds that changing the MLR calculation would slash rebates paid to consumers by more than $1 billion.

The report notes that if the MLR requirement were applied to 2010 data collected by the NAIC, insurers would have paid a total of $1.95 billion in rebates to individual, small group and large group customers. However, if agent and broker commissions and direct sales salaries are not included in the rebate formula, as is proposed by HR 1206, those rebates drop to a total of $680 million—a decrease of roughly $1.3 billion.